The Financial Conduct Authority confirmed in April 2013 that all legacy business on platforms will be required to move away from rebates by April 2016.
Under the ‘sunset clause’ advisers increasingly under pressure to switch clients over before time runs out.
Recent research by Investec published in October this year suggested that many IFAs will not be ready for the ‘sunset clause’ deadline.
Some 80 per cent of intermediaries believe that some advisers will struggle to fully complete the transition from commission to fee-based remuneration before the April 2016 deadline, according to the research.
Elsewhere, some platforms have been working on restricted advice propositions to meet adviser and client needs in a changing environment post the Retail Distribution Review.
Aviva is working on a project to roll out ‘focused advice’ services to its platform that advisers could use when working with clients that cannot afford full advice.
Equally, the pensions reforms have piled another layer of pressure onto the platform space.
Many platforms have cut their charges in the wake of the Budget announcement. In April this year, Aegon and Cofunds cut their platform charges.
In July this year, Aviva scrapped its drawdown charges following the Budget announcement. Old Mutual Wealth followed suit in October this year scrapping its drawdown fee and minimum investment charge.
With platforms existing in an ever-evolving environment, it seems fitting to ask advisers how they see the role of platforms changing and what the expectations on them are, as well as advisers’ own expectations.
How many platforms and how often to review them?
Most advisers use a host of platforms to choose from to meet their ideal needs and cater for their clients most efficiently.
Daren O’Brien, director at Aurora Financial Solutions, said that the firm currently uses Fidelity FundsNetwork, Cofunds, Elevate, Zurich and Nucleus, with each having good points for different products.
He said that the firm annually reviews the platforms used and the CIP for the year at the same time, but this will be reviewed mid-year if platforms change pricing or issues are encountered.
Mr O’Brien said: “This gives us a guide initially on which ones to use for a particular client, but ultimately it depends on the client’s specific needs/products.”
Paul Lindfield, director of wealth management at Sedulo Wealth Management said that the firm currently uses three platforms: Standard Life, Zurich and Fidelity FundsNetwork.
Mr Lindfield said: “Although we are a relatively newly authorised firm of less than two years, I did have a client bank that had legacy business on platforms. We were keen to select a platform provider that best suited our clients and our needs in the post-RDR world rather than just inherit platforms through legacy.
“We selected Standard Life as our main platform provider due to financial strength, tax wrappers, funds, and functionality in addition to other aspects such as unbundled share classes available, and bulk share class conversions.
“Financial strength is still a major priority due to high costs of moving to unbundled share classes and the future costs impacted on platform providers.”
Mr Lindfied said that the firm reviews its platforms annually, and pretty much carries out the same due diligence process albeit in some parts “a little toned down.”
James Priday, director at Prydis Wealth, said that the firm currently runs a branded version of Ascentric, and also Skandia, Fidelity FundsNetwork and Standard Life.
He said that Ascentric has become the main platform over the last couple of years, predominantly because of its truly open architechture, and the vast investment flexibility that allows the firm to carry out its discretionary investment activities, which is an increasingly important part of the business.
FCA expectations and due diligence
Matthew Brown, executive and retirement services director at Broadstone Wealth Management said the Financial Conduct Authority is very clear in its views on what it expects from advisers.
Mr Brown said: “It expects firms to know who their clients are, the type of new clients they are targeting and know the services it is providing. It then expects firms to select a platform that is appropriate for the services being offered to that type of client.
“Having a well-defined proposition and business plan is an essential part of explaining to the regulator (should they ever ask) how you chose the platform(s) that you use.”
Interestingly, he added that the regulator has a view that it is unlikely that a single platform would be suitable for all types of clients a firm will work with, which he believed was reasonable.
Mr Lindfield said that the choice of platforms to use is a strategic business decision and not dependent on any one factor such as cost. He agreed that as an independent firm, you would be expected to consider whether the use of a single platform would be appropriate for the client base.
Mr Brown also said that due diligence must start from an adviser of firm’s defined proposition. “Best practice makes use of both third party and in house research. It is important to ensure that the rationale behind platform choice is clearly written down so it is readily available if the decisions are ever challenged.”
Mr O’Brien said that the FCA expects that the platform used does actually benefit the clients first and foremost and that Aurora’s due diligence procedure is based on price/service and client functionality and focused on client outcomes.
Mr Lindfield said of the due diligence process that if done properly, it is suitable but involves a lot of time.
“For smaller firms, this is a lot of due diligence to carry out and review annually, particularly if you want to include site visits, the beauty parade interviews and selection process. However, there are tools and compliance support providers than can greatly help by providing the groundwork including platform fact sheets, and templates and platform questionnaires.”
Platforms as a back office tool
When asked how big a factor in the decision is the value of a platform as a back office tool, such as in-built functions to use with clients, most advisers asked said that it was of little or no importance.
Mr Brown said: “If an advisory firm ties in their offering to a tool on a platform they are, in effect, tying themselves to that platform. I would rather see CRM Systems build tools or work on a best of breed basis.
“I want a platform to focus on doing its core role well and cost effectively. Whistles and bells just add unnecessary cost.”
Mr O’Brien agreed that whilst they are useful to advisers, it’s not a reason why the firm would select a specific platform over another.
“Some advisers might see the back-office facilities available on platforms (report and tax certificates) as a main reason to use them and simply for the advisers own convenience. However, we would not do this as the clients pay us a specific fee and then the platform charges separately, therefore it should never be an issue if the adviser has a correct charging model.”
Mr Lindfield said that at Sedulo, advisers view platforms purely as an investment portal with efficient administration functions, and not as a back office system.
CPD Questions
What percentage of intermediaries believe that some advisers will struggle to fully complete the transition from commission to fee-based remuneration before the April 2015 deadline?
A: 80 per cent
Who scrapped their drawdown charges in July this year in the wake of the Budget?
A: Aviva
